On housing benefit cuts

Why has the Prime Minister not opted for the more difficult decisions?

The Prime Minister delivered a speech on welfare reform which has polarised opinion. His supporters have responded broadly positively, while his opponents have responded with various levels of outrage – whether in terms of ‘class war’ or whether it signals the return of the ‘nasty party.’

Having a scan through various articles on welfare and its various components, it’s not entirely clear as to what constitutes ‘welfare spending.’ The Guardian from 2010 quotes Iain Duncan Smith stating the welfare bill as being around £87billion while the Prime Minister indicates that benefits for the elderly (which he states are mainly made up of pensions) take up £110billion of the total welfare bill. Which is it?

On the housing benefit issue, there are a number of areas where there feels – on the face of it at least – some confusion as to who is ultimately responsible for housing benefit. Is it the Minister for Housing? Is it a minister in the Department for Work and Pensions? Or is it ultimately a minister in the Treasury who pulls the strings? You then have the added complication of things going through local councils in an era of localism and the removal of ‘ringfencing’ of government grants. (DirectGov’s housing benefit pages are here)

The Prime Minister understandably wants to get the welfare bill down. Politicians have been wanting to do this for years – or at least targeting it better towards those that need it or certain groups.

On London rents alone, the picture looks depressingly bleak. Cross-reference that with social mobility issues and the internships in Westminster – the unpaid ones. Depressingly I’m noticing that a number of full-time jobs on that site are now asking people to have completed internships as one of the criteria/requirements for said jobs. Depressing if you are one of the people who cannot afford to do those internships in the first place, whether paid or otherwise. How many organisations pay interns a living wage that enables them to live independently in London? (i.e. not with parents/relatives or subsidised by either?)

Throwing a bucket of water at an inferno

Whether it’s ‘encouraging’ firms and employers to pay interns ‘fairly’ or trying to ‘do more’ to deal with problem X, Y or Z, too much of what is coming out seems to be a reflection of what ministers see as easier levers, than tackling the more difficult problems. The welfare bill is something that ministers feel they have more control over. By saying “Group X will now be excluded” the assumption is that the welfare bill will fall. But does it account for the consequences of such a move? For example will it push more young people into more substandard housing because they cannot otherwise afford the rent? In which case what will the knock-on health impacts be? What will the impact be on those who – like me have moved back in with parents? Much as I’m grateful for and dependent on their continued support, it shoots to pieces your self-confidence and self-esteem. Shouldn’t I have my own full-time job, house and car by now?

Housing has been an area of catastrophic policy failure for a series of governments and ministers for many years now. Labour did not help themselves with the regular reshuffles of housing ministers. It’s only very recently that people have started to realise that the main levers of housing are in The Treasury – where few housing advocates happen to reside.

It’s all very well saying “We need more affordable housing” but part of the problem is that we’ve moved away from a model of where the state builds houses to one where there is a huge reliance on ‘the market’. The model for state-funded new homes is one where a certain proportion of developments are purchased by housing associations for sale or rent at ‘affordable prices.’ Therefore you are constantly at the mercy of developers waiting to build and release houses onto the market at the best price, rather than to deal with the highest need.

For how much longer can the UK – and London in particular – sustain such inequalities? How long before such inequalities start seriously damaging the UK economy – if they’re not damaging it already?

What difficult decisions does Cameron need to make?

On housing benefit, it’s not the state expenditure (or demand side) that he needs to look at, it’s the supply side. What data does he have on empty homes? What data does he have on multiple home ownership? What data does he have on property purchases from people living/working abroad and how do such purchases correlate with other data in those areas regarding housing and homelessness?

Some people may say that what people choose to spend their money on is none of the state’s business. Within its little silo, yes. But when you are dealing with one of life’s essentials – of which housing is one – and one that is in limited supply, you cannot pretend that the hoarding of said essentials by a certain group of people, or the very restricted access (as a result of high prices) to those essentials for the rest of us, doesn’t have any consequences. They do have consequences and they are very real.

Will any of today’s politicians seize the nettle on housing?

I’m struggling to find many. Not because they are bad people, but because they are constrained by their own ideology about what the state can & should (or rather cannot and should not do). Labour were constrained by it during their time in power. If they were not, local councils would have been buying and building houses all over the country to meet the demand for affordable housing. Don’t expect any different from the Coalition parties either.

Can politicians produce a comprehensive plan that brings together a series of interventions, measures, policies and plans that can deal with the supply side of housing? Things like:

building more homes in areas that need it

buying up and refurbishing more homes in areas that need them

changing planning laws to restrict the building of luxury apartments and rabbit-hutches of the buy-to-let mould in favour of family homes

forcibly converting artificially sub-divided family homes back into family homes

giving far greater resources and powers for council housing enforcers to take over badly-maintained homes owned by slum landlords – banning the latter from owning & letting property

bringing in land value tax as a replacement for council taxes, and taxing the super-wealthy areas at more punitive rates to unlock some of the funds for some of the above-mentioned policies

Bringing the above in could help reduce house prices – both purchase and rental – for many people. Greater supply at the much-more-affordable end could reduce both the number of people on housing benefit and the amounts paid out at the same time. But the political will is not there. The Prime Minister has made his choice and it is for him and his supporters to stand by that choice and argue why alternatives such as the above are not feasible – whether politically or practically in terms of delivery.

There is the problem of negative equity for ordinary people – but how many people will that affect and what can and should the state do? Can it differentiate between the ordinary home owner and the buy-to-let investor? (i.e. bailing out the former and letting the latter go bankrupt?) Should the state differentiate in that way or let the market go its course?

I can’t see the above policies happening in the near future, but at the same time I struggle to see how the continuing state of affairs is sustainable. It isn’t. Something has to give. And that’s what worries me.

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2 thoughts on “On housing benefit cuts”

The latest complete figures I could find are 2010, so we’ll go with those.

Total cost of Housing Benefit, nationwide: £20.8 billion.

Total cost of Tax Avoidance (Treasury Estimate for that year): £30 billion.

Where does this government target? The poorest (and in some cases supposedly middle-class) who need help with housing costs because of, well, everything you’ve just said; or the richest who use and abuse tax avoidance measures to the detriment of all?

Interesting stat I just picked up off there, in London Average House Price is 8.54 times Average Salary… and that’s a city with a pretty high average salary! Only in the North East does that ratio drop below 5 (to 4.96)… and most banks at the moment aren’t giving anything higher than a 3:1 mortgage meaning you need a 20% deposit to get on the property ladder at all.

There needs to be a massive program of investment in proper social housing. The current crisis was caused, in part, by not re-investing the money received from Right-To-Buy (a great scheme, in my opinion) into new Social Housing stock. As such, there is insufficient social housing to meet demand, and the problem has only grown since the mid-80’s… so people get help with rent instead. Landlords (read: those who can afford to) buy property to rent for profit. Very simply it adds a layer of profit to private individuals at the expense of the Exchequer… this theme is repeated wherever we privatise industries which are a basic human necessity and have a high barrier to entry to the market (transport, energy, water etc etc).

The issues around property in this country are complex and vast. At the very least we deserve an intelligent nuanced debate on the issues before cross-party efforts are made to address the problems… with our current style of Punch ‘n’ Judy Politics I very much doubt that will happen.

A tax on second homes might drive down property prices in areas like Cornwall and free up homes for local young people. No-one needs two houses in the same country. Many people with second homes only use them for a few weeks each year and do not contribute much to the local economy.